Case for tougher super rules

The head of the review of the superannuation industry yesterday gave the strongest hint yet that he would recommend the federal government increase regulation of the $1.2 trillion sector.

Jeremy Cooper
also argued that the two main competing segments of the market – not-for-profit industry funds and retail schemes – should end their rivalry and focus on member returns, suggesting that the publishing of performance data was more about point scoring than giving people the necessary information to build their retirement savings.

“The super industry needs to get over industry versus retail," Mr Cooper said yesterday. “It’s about the members. The industry needs a big brother approach. Sadly it needs a big stick. The industry can’t get its act together on how to supply comparable fees and how to reduce fees. It is so important that the government has to do it," he argued.

Mr Cooper is scheduled to deliver the report to the government at the end of next month after 12 months of consultation with the industry.

The former deputy chairman of the Australian Securities and Investments Commission has spoken to the deputy chairman of the prudential regulator, Ross Jones, about the latter taking a bigger role in the supervision of retirement schemes.

The Australian Prudential Regulation Authority monitors the super system and collects returns data, but doesn’t oversee fund performance.

Under Mr Cooper’s proposal, retirement schemes would send audited accounts for the planned new default funds, known as My Super, to APRA, which would have the powers to question funds about expenses and investment returns.

“Focus on disclosure to members doesn’t seem to have worked. We need more disclosure but in a different place," said Mr Cooper, questioning the value of providing past performance data to members.

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Mr Cooper criticised master trusts for their fee claims. Retail trusts have argued that the average member fee has declined by 0.45 of a percentage point over the past six years.

But seen in the light of the 93 per cent growth in funds under management over that period, in dollar terms fees had actually risen by more than 22 per cent, Mr Cooper said. Even when taking into account the rise in the number of members and inflation, fees in dollar terms had, at best, remained flat.

Mr Cooper also challenged the correlation between investment management costs and performance, pointing to academic research in the US which showed that investment managers who charge high fees merely acted as a drain on member returns, rather than generating ­superior performance.